Sri Lanka’s credit card usage surges after a prolonged period.
By: Staff Writer
February 07, Colombo (LNW): Sri Lanka’s credit card industry is becoming increasingly dynamic, as the number of new cards issued declines yet the purchase volume and transaction value have steeply increased..
Even though Sri Lanka’s credit card penetration is considered to be fairly sufficient, it is comparatively low to its Southeast Asian counterparts
The credit card activity, which remained lull for a prolonged period, appears to have broken its trend and set off to potentially a robust run of spending in the period ahead.
The cardholders were seen swiping more frequently for their festive spending and leisure and travelling needs in December last year.
In the current trend toward a cashless society, credit cards are the predominant form of “plastic” currency used to take over cash. Credit card usage in Sri Lanka has steadily increased over the past few years.
However, users’ inability to manage spending may lead to excessive outstanding balances, prolonged repayment periods, and increased interest payments.
The latest data available showed that in December 2023, the cardholders have ramped up their spending considerably, as the outstanding credit card balance of the licensed commercial banks has jumped by a robust Rs.6,176 million, the largest monthly increase from a very long time.
This was in comparison to the Rs.1,205 million increase in November and Rs.309 million contraction in the month before.
The trend points to a sharp acceleration in the spending by the card users for their spending, as they appear to have felt a bit more ease to stretch their budgets, with the cooling inflation and softening interest rates.
The consumer sentiments in December also saw picking up, although that could be tempered by the January tax hike and the sharp increase in the prices of consumer goods.
However, the Central Bank is confident that the current price pressures wouldn’t last long, as inflation would settle at its medium-term target of around 5 percent, after a few months of running above the midpoint.
Despite the December jump in card balances, the full-year gain came in only a bit higher at Rs.8,275 million, reflecting that almost all the increases in 2023 came during the last two months.
December is however a month with some heightened activity, due to the year-end festive demand, where the people usually loosen their purse strings than in any other period of the year, except during March and April, for the traditional new year celebrations.
While the ceiling interest rate in cards’ outstanding balance was cut to 28 percent in September, from a high of 35 percent, it is expected that the Central Bank would further slash the maximum rate chargeable on cards in the near future, as the lending rates in the economy are easing faster.